Best World International (BEST SP) - Maybank Kim Eng 2017-12-04: Tapping Into Technology And Huge Market Potential

BEST WORLD INTERNATIONAL LTD CGN.SI

Best World International (BEST SP) - Tapping Into Technology And Huge Market Potential

We hosted Best World International for an NDR in Singapore. Key takeaways:
1. it has set an ambitious goal to reach 5% market share or c.CNY10b of China’s CNY193b skincare market, from less than 1% in FY17E. It will continue to drive sales via expansion into more cities and focus on its 3P winning strategies (product, people, plan);
2. it is tapping into digitalisation and social media, such as WeChat and Facebook to enhance its sales; and
3. it is expanding into new markets and restoring its Taiwan market.

Maintain BUY and TP of SGD1.88, based on 19x FY18E EPS (PEG of 0.7x using FY16- 19E EPS CAGR of 27%); We ascribed a c.30% discount to the PEG of 1.0x for regulatory risks and competition.

To achieve this ambitious goal, which requires sales growth of around 80% for FY18-20E, Best World International will expand into more cities across China. The application for a direct selling license beyond Hangzhou City has already started and should include at least 7 provinces by end-2018. Cities in Hunan province are expected to be approved first, followed by other provinces.
Also, it will continue to focus on its key strategies, especially in promoting good skincare products with unique selling propositions.

Best World International demonstrated how its distributors adopt social media, such as WeChat and Facebook, as well as video to share and promote its skincare products. Also, the number of followers for its WeChat and Facebook account have more than tripled since Feb 2017 to more than 24,000.
It also demonstrated the application of its newly-developed mobile app, launched in Taiwan, which makes ordering of goods easier. The app will be launched in more markets soon.

Best World International is exploring to growth in Indonesia and ventures into new markets, such as Japan and India in the future. For its second-largest market, Taiwan, it halted promotions to prevent discounted sales by distributors.
We should see a gradual recovery from 2018 onwards due to the low base and after weeding out discounted goods.

Shares re-rate as investor recognition increases. A 2-yr scenario to 19x FY19E EPS suggests 76% upside to SGD2.15 based on a PEG of 0.7x FY16-19E EPS CAGR of 27% (c.30% discount on regulatory risks and competition).
Robust growth in China after the approval of direct selling licence.
Successful expansion in Taiwan, Indonesia and Philippines.
Expansion into new markets, such as the Middle East.

Regulatory changes detrimental to direct selling in its markets, similar to Indonesia’s restriction on healthcare imports in 2009.
Reputational risks caused by fraud or fake-product scandals for other direct-selling players or BEST’s members.
Failure to scale up in China would result in up to 10% downside to the share price valuation

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-12-04

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.880 Same 1.880